With inflation, rising interest rates and general economic uncertainty, last year presented several challenges for financial services institutions (FSIs). As we move into 2023, FSIs will need to focus their increasing IT spend and direct their attention to delivering on the total experience for their customers and employees and on environmental, social and governance initiatives if they want to turn these challenges into opportunities.
Here are my predictions for how these trends will impact the financial services industry in 2023.
The total experience
More than ever, customers are looking for empathetic, humanistic, personalized, intuitive, relevant and fast service. However, according to Jim Marous, owner and CEO of Digital Banking Report, most FSIs are not prepared to move from a product-centric organization to a customer-centric one. “There needs to be a cultural shift at most organizations that will support the customer journey — from the customer’s perspective — helping the customer improve their financial wellness,” says Marous.
It’s no longer enough to simply provide a service to your customers. To remain competitive, financial services organizations need to invest in total experience (TX). This requires the right combination of technology and processes that empower employees to provide superior service, deliver optimized customer experiences, enforce governance and risk management, and reduce operational costs.
In the next 24 months, TX will be the differentiating factor for FSIs and will underpin every other trend in the financial services industry.
Fueled by digital transformation
Customers today want the same seamless experience from their banks that they get when purchasing a product from Amazon. Some banks—like JPMorganChase, Citi and Capital One—are getting it right, providing their customers with in-app features such as disposable virtual cards, credit card transaction dispute and AI chatbot support, all from their mobile device. Others, like Fifth Third, are revamping their digital initiatives to offer better support to customers.
Digital transformation accelerated during the pandemic, but as we move into 2023, FSIs will need to extend these initiatives to implement them inside out—and outside in. Employees want internal processes and systems that make it easier to complete their day-to-day activities. By automating processes and ensuring employees have access to the information they need, FSIs can enable employees to spend less time on mundane activities and more time with customers, delivering the consultative financial health and wellness services that customers are seeking.
The Great Consolidation
The Great Consolidation has driven a significant reduction in the number of banks and associated branches over the past 45 years. When the pandemic hit, many banks took advantage of this time to accelerate branch closures, resulting in more than 4,000 branches closing since March 2020. That’s double the pre-pandemic closure rate.
When branches close, customers who used to access their banking services in-person are now forced to transition online. This means it is even more critical to provide a better digital experience to customers—ensuring the experience is user friendly, with easy and intuitive UX and frictionless multichannel engagement—while equipping employees to handle this transition effectively and securely. According to Segment research, 69% of customers want a consistent experience with a company across all physical and digital channels.
Environmental, social and governance
Customers today are acutely aware of how their purchases contribute to climate change or social injustice. In fact, according to Deloitte, most banking customers say they would leave their bank if they knew it was causing environmental harm.
Many banks have responded to these increasing customer expectations by reaffirming their environmental, social and governance (ESG) commitments. However, there is still more to be done.
Growing IT spend
To stay competitive and deliver the total experience in the next year, FSIs will need to scale up their digital transformation efforts. This requires an investment in IT.
This is a trend we have seen over the past few years; enterprise IT spend was expected to grow by 5.2% in 2021, and by 6.1% in 2022. This trend is only expected to continue, with enterprise IT spend in the banking sector projected to grow over 25% by 2025. As FSIs continue to evolve their business models and processes to be more agile and deliver improved digital services, we will see continued growth in IT spend.
Digital transformation, ESG and delivering the optimal customer and employee experience — which sums up to the total experience — will be the differentiating factors for the financial services industry in 2023.